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How FATF Graylisted Southeast Asian Countries are Leveraging Crypto

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Lorena Nessi
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Key Takeaways

  • Vietnam, the Philippines, and Myanmar are Southeast Asian countries on the FATF gray and black lists. 
  • These nations face ongoing challenges due to regulatory scrutiny and the need for significant regulatory compliance. 
  • As a parallel solution, they are adopting stablecoins and digital technologies, such as QR code-based payments, national currency-backed stablecoins, and widespread stablecoin adoption. 
  • This push towards adopting new technologies demonstrates a proactive approach to using digital finance to support economic growth and stability in the region.

Amid greater economic and social challenges than those faced by developing nations, Southeast Asian countries such as the Philippines and Vietnam have been gray-listed by the Financial Action Task Force (FATF),  while Myanmar has been on the blacklist since June 2022. 

In response, South East Asian countries are strategically turning to cryptocurrencies, especially stablecoins, to strengthen their economies. 

This article examines the role of stablecoins in Southeast Asia amid economic challenges. It assesses the impact of FATF policies and includes case studies demonstrating how cryptocurrencies contribute to resilience, potentially shaping the future of these economies.

What Is FATF Graylisting, and Why Does It Matter?

Established in 1989 by the G7 countries (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States), the FATF enforces policies related to anti-money laundering (AML) and counter-terrorism financing (CTF). 

Although being on the FATF list does not impact countries as harshly as the blacklist —which points out high risk and severe deficiencies in their strategies—it still presents economic obstacles. Often, this includes a significant drop in capital inflows—sometimes amounting to about 7.6% in capital inflows —as it highlights weaknesses in the countries’ efforts to enhance their financial policies.

Placement on the FATF gray list can significantly reduce international trade and investment flows, as nations and foreign investors perceive gray-listed countries as high-risk. This perception increases business costs, heightening scrutiny and compliance requirements, which may decrease foreign direct investment. 

Additionally, international banks might stop or reduce services to businesses in gray-listed countries to avoid the risks and extra work needed for stricter checks.

Stablecoins as a Financial Response To Graylisting

Cryptocurrencies, including stablecoins, are playing a significant role in addressing the economic challenges faced by some Southeast Asian countries on the FATF gray list.

These digital assets provide alternative financial solutions that help mitigate issues related to traditional financial systems, which the graylisting may more directly impact.

Stablecoins are digital currencies that aim to maintain a constant value by linking to a reserve asset such as fiat money like the US dollar or gold.

Countries such as Vietnam, the Philippines, Myanmar, and Malaysia, where financial uncertainty is prevalent, are adopting stablecoins as reliable national and international transactions and savings methods. This approach provides a solution that avoids the volatility of other cryptocurrencies, making it a stable financial tool in these regions.

Resilience Through Crypto and Tech: Case Studies

The following cases are examples of how the use of cryptocurrency is increasing in the region. 

Philippines 

The Philippines has seen significant developments in adopting stablecoins, particularly for remittances.

  • Coins.ph has a user base of 16 million, marking it as a major entity in the Philippine crypto space.
  • The Bangko Sentral ng Pilipinas (BSP) granted Coins.ph approval to pilot PHPC, the first Philippine peso-backed stablecoin.
  • PHPC is pegged 1:1 with the Philippine Peso and is supported by Coins.ph’s cash and cash equivalents held in Philippine bank accounts.
  • This initiative is designed to address the remittance challenges faced by overseas Filipino workers by providing a more stable and efficient means of sending money home.
  • The pilot program will test PHPC’s functionality and potential benefits in real-world scenarios while monitoring its impact on the current financial ecosystem.

Vietnam

In Vietnam, the use of stablecoins is expanding, particularly in the e-commerce sector. The country is part of the Regional Payment Connectivity (RPC) initiative, which enhances financial links across the region and supports the growth of Vietnam’s digital economy. By using stablecoins, Vietnamese micro, small, and medium-sized enterprises (MSMEs) increasingly participate in cashless transactions, aiding in expanding e-commerce activities across borders.

Myanmar

The situation in Myanmar is complex and challenging. It is listed on the FATFs blacklist, which means that the country is urged to implement stricter measures. Following a military coup in February 2021 that ousted the elected government led by Aung San Suu Kyi, the country has been in a state of turmoil. 

This political instability has led to widespread protests, economic disruptions, and international criticism. The establishment of the National Unity Government (NUG) by opposing groups reflects ongoing resistance against military rule, emphasizing the contentious current political landscape in the country. This government has embraced using the Tether (USDT) stablecoin as an official currency for local transactions.

While these three countries are on the FATF’s black-and-gray lists and face economic challenges, others in the region also embrace new technologies and stablecoins as part of their economic strategies. 

Malaysia

In Malaysia, the integration of stablecoins into digital wallets and payment systems is significantly enhancing financial inclusivity. The country has been making strides in developing its digital payments infrastructure, evidenced by a marked increase in non-cash transactions and the widespread adoption of digital payment solutions.

For example, the DuitNow QR system, Malaysia’s QR, is a national QR standard developed by Payments Network Malaysia (PayNet), which operates under Bank Negara Malaysia, the country’s central bank. This system standardizes QR code payments across various financial platforms, facilitating interoperability and easing digital transactions for users across Malaysia.

DuitNow QR Code
DuitNow QR Code

Challenges, Opportunities, and Future Trends

Integrating stablecoins and new financial solutions in Southeast Asia presents distinct challenges and opportunities. Regulatory hurdles, such as compliance with international financial standards, are significant obstacles. 

However, stablecoins and new technologies have also been proven to offer substantial economic opportunities by enabling smoother international transactions and enhancing efficiency in international trade and transactions. Technological advancements in blockchain and fintech are crucial for facilitating the adoption and integration of stablecoins.

As a result, stablecoins are poised for future growth within the region’s financial systems.

Conclusion

Southeast Asia is seeing major changes in its financial strategies due to the adoption of stablecoins amid challenges from FATF graylisting. These digital currencies are becoming crucial for enhancing economic resilience and providing efficient transaction mechanisms. 

While the future of cryptocurrencies in the region appears promising, being on gray or black lists highlights significant challenges and the need to address regulatory issues to attract more support from investors and other economies.

FAQs

What countries are currently on the FATF's blacklist?

The three current countries on the FATF list are the Democratic People’s Republic of Korea, Iran, and Myanmar.



How can a country be removed from the FATF blacklist?

A country can be removed from the FATF blacklist by addressing the strategic deficiencies identified by the FATF in its AML and CTF practices and demonstrating significant progress in improving its financial regulatory environment.

What are the potential drawbacks for countries placed on the FATF gray list?

A place on the FATF gray list can lead to several adverse effects for a country. These include increased scrutiny from international financial institutions, which may result in higher transaction costs and stricter compliance requirements. Foreign investors might view a gray-listed country as a higher risk, potentially leading to reduced foreign direct investment.



Which stablecoins are most commonly used in Southeast Asia?

In Southeast Asia, the most widely used stablecoins are Tether (USDT), USD Coin (USDC), and Binance USD (BUSD). These stablecoins are favored due to their stability, being pegged to the US dollar, and extensive acceptance across various cryptocurrency exchanges and platforms.

 





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Lorena Nessi

Lorena Nessi is an award-winning journalist and media and technology expert. She is based in Oxfordshire, UK, and holds a PhD in Communication, Sociology, and Digital Cultures, as well as a Master’s degree in Globalization, Identity, and Technology. Lorena has lectured at prestigious institutions, including Fairleigh Dickinson University, Nottingham Trent University, and the University of Oxford. Her journalism career includes working for the BBC in London and producing television content in Mexico and Japan. She has published extensively on digital cultures, social media, technology, and capitalism. Lorena is interested in exploring how digital innovation impacts cultural and social dynamics and has a keen interest in blockchain technology. In her free time, Lorena enjoys science fiction books and films, board games, and thrilling adventures that get her heart racing. A perfect day for her includes a spa session and a good family meal.
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